Friday, October 30, 2009

The Future of Research Economics

Tyler Cowen notes some relevant trends here . I talk to people and they say that applied micro has suffered over the last 15 years as top Americans have gone to Wall Street rather than the professor route. When I was a graduate student 20 years ago, my entering class was 50% American. Now I believe that at Chicago it is 15%. So what? I'm go back and forth on the causes and consequences of the globalization of research economics. I look at the MIT faculty. It is a highly international group and they are certainly churning out great research except when the World Cup is played and then the place turns into the United Nations.

A deeper question might ask; "Why are Americans not entering academic economics?" Is it simply the "pull" of Wall Street big money? Unfortunately, I am slightly worried that economics has hit diminishing returns. There is a huge intellectual payoff from starting to know basic economics and statistics but are there increasing returns here?

I think of Watson and Crick and the Double Helix with many research teams all simultaneously trying to crack the same research question. They were working in a "stationary" environment. I don't believe that DNA changes over time.

Economics is harder. The agents we are studying form expectations of the future, are highly heterogeneous, their choices are often strategic and some claim that they even make mistakes. These agents have private information concerning their past history and this past set of choices and outcomes affects their decisions today (non-separable) On top of this, the economies we study are not stationary as they are bombarded with shocks (climate change, financial news, new products) that change the equilibrium we observe. If we could study a stationary process where people play the same games and situations over and over, I'm highly optimistic that we could use revealed preference methods to tease out interesting facts about people, firms and governments and then use our "structural findings" to inform policy debates.

I do have the sense that modern applied micro is too spread out. Our collective research covers a vast number of topics. I would find it satisfying to be in a field where there is one core question and everyone is trying to make progress on that question. In contrast, we have sprawled. Perhaps I know too little about other fields and they are equally sprawled.

Well, I just received a revise and resubmit email so please let me end this blogto get back to the research frontier. Lucas please call me!

UPDATE: I see that people are reading this blog entry so I want to offer a quickfollow up.

I am proud to be a Ph.D. applied economist. If I was 22 again, I think I would make the same career choice. This is certainly a very good life. But in 2009, are the next 30 years brighter for academic economics or academic biology meets computer science or neuroscience? If in the year 2039, economics is in the midst of a "golden age" --- this would be a very happy surprise to me when I am a 73 year old man.

I want to be wrong here because it would be quite exciting to be part of a field whose cumulative insights are accelerating. What can economics do to maximize the likelihood that this remains an exciting time for our field?

A couple of "micro" ideas

1. Google could create a centralized data clearinghouse so that all data sets would be archived there after publication. No more ISSR. Journals such as the AER that require such archiving could forward on the data sets to Google.

2. The National Academy of Sciences could strongly lobby the government of the U.S and others around the world to reconsider what types of data are collected and to reconfigure panel data sets.

3. The U.S tax authorities should offer special tax deals for data companies to share proprietary data with academic nerds. I pay a lot of money for micro data sets from companies that sell real estate data or vehicle registration data. There is no reason for why I need to face such monopoly pricing when the true marginal cost of data delivery equals zero. This is slowing down science.

#1- #3 would improve data quality and guarantee replicability. It would lower the barrier to entry -- we know that the number of papers written would rise but would average quality rise? Given that we only care about the max of the set --- so what? but someone would have to review all of these papers.

I just stumbled across this recent speech by Alan Krueger. He appears to agree with me.

I am not smart enough to answer the riddle of the future of macro. We started with the 1 sector growth model with representative agents and common production technology. We now agree with the 2000 Nobel Laureate concerning the fundamental role that heterogeneity plays along many many dimensions in our modern economy. Once we allow the "heterogeneity genie" out of the bottle, how do we generalize from the field experiments we run? How do we do empirical work when we are accumulating high numbers of unobserved state variables that the agents are aware of and responding to but that the econometrician does not observe?

8 comments
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This is a very interesting blog. You seem to really know your stuff and I enjoyed reading your blog. I was just blogging about this subject. Please visit my blog and comment on the most recent entry it would be great to get your input.

I think you both get the causality backwards as to the international composition of graduate programs. I think that is more an example of an increase in international student supply rather than a decrease in domestic.

If people around the world generally accept that the US programs are the best in the world then even at 15%, the US is still overrepresented.

And what has changed is that students in other countries now have easier access.

As for sprawl, within the social sciences, the economists are the most focused by far. We at least agree on the tools, and within applied micro we all understand each others papers. That is far from the case in most other fields, it seems.

Why do economists not only see the environment as some external force messing with their economy, but also simultaneously consider it static and simple to study, while also declaring it just some liberal ideology and not science backed by evidence supporting theory.

Yeah, I see you are "green", but you have fallen victim to the same anti-science bias of the majority of economists. And that is why economics is not making it as a science, but is instead in the realm of philosophy and religion.

Climate studies are extremely complex, and the concern with AGW is that man is changing the natural climate change in ways we don't understand, and at rates we fear are going to cause another great dieoffs we see in the millions of years of fossil records, or the more recent ice and silt sendimentary record.

The ecology of which the economy is part is as effected by human activity as the economy is, so studying economics is no harder than studying the ecology.

The problem is the facts don't support the religous views economists call economic theory.

Experimental behavioral economics and economic game theory are redefining the basis of the entire field (replacing the fictional "homo economicus" with a more realistic psychological model); the study of externalities (largely environmental economics) is hitting its stride; new institutional economics, studying the nature of institutions and their governance, is making great developments. Soros and Taleb are starting a new study of the way in which systems continually fail to reach equilibrium.

None of this has anything to do with "traditionalist" macro or micro, where research has hit a dead halt -- largely because much of it is based on oversimplifying assumptions.

The latest gaffe of Levitt and the majority of economists who believed the world had fundamentally changed since the thirties show the real reason: economics is not yet a real science. The public face of economy is mostly ideology based and cozying up to the powers that be. In the nineties to Reagan, now to Obama.

I think it's ironic that you ended the post and then ran to do an R&R. I realize that your professional incentives point to paper (not blogging), but where do you think you can have the biggest impact on society, at the margin?

At the moment, I think that the marginal returns to blogging are positive; for at least 90 percent of academic papers, I think they are negative.

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